The early withdrawal penalty tax does not apply to a distribution used to pay medical expenses in excess of 7-1/2% of AGI. If an accountholder is married, filing jointly, can the distribution avoid the penalty if it is used to pay medical expenses for the spouse? children?

This is a repost from the 401(k) topic

MBozek wrote:

"A; Borrowing directly from the insurer is a common practice in 403(B) plans where there is no trust and the employee uses the assets under the annuity contract as collateral. The insurer continues to pay the fixed rate of interest guaranteed under the annuity contract while the employee pays 1 or 2 % over the credited rate of interest to the insurer. The loan provision is permitted under state insurance law."

Observation: some 403(B) plans are subject to Title I of ERISA, and others are not.

Question: Does your post assume that the 403(B) plan is not an ERISA plan (and accordingly ERISA prohibition on assignment doesn't apply)? Would a state insurance law of the nature you describe be "saved" from preemption? If so, this surprises me because the issue of plan loans is arguably a fiduciary issue, which is outside of the scope of preemption.

Second question: Can these Fund Sponsor-direct loans be made to former employees? I recall that loans to former employees is prohibited, yet I can't seem to find authority for the prohibition.

If an HCE elects to opt out of the plan from plan year to plan year (document allows for this), are there any ramifications? The company is a C-corporation so I am wondering if the deemed CODA rules would even come into play. The HCEs salary does not change as a result of this election.

I have a client who sponsors a profit sharing 401(k) plan. The plan is effective 1/1/2002 with just profit sharing. There are 32 participants plus the owner. To calculate the earned income for the owner, I requested the Schedule C, line 31 amount. Well I got it but along with it came a note that said the owner also received $112,000 in W-2 wages from his company. Yep, he received a paycheck that withheld taxes, including social security. The line 31 amount is $278,000 and includes the deduction for the 2002 payroll of all employees including him. Do I use the $278,000 for the earned income calculation and then add the $112,000 to the final number and for the 1/2 of self-employment deduction under 164(f) only use Medicare because he's already paid his full social security (and employer portion) as part of the $112,000 or do I add the $112,000 back to the $278,000 and calculate the earned income from that and include social security (and medicare) in the calculation?

My brain may explode soon!

I have left one employer with which I have a 401K. If I start a 401k with my new employer without rolling over my old 401k, will I be penalized?

I have a plan (12/31 pye) that during 2002, for the 1st qtr. they had a deferral limit of 20%.

Effective 4/1/02, they changed the limit to the 402g limit of $11,000.00.

How could I determine the annual limit for 2002?

They had a percent for 1/4 of the year, and a dollar amount for 3/4 of the year.

If they had 2 separate percents, with a change mid-year, it would be easy, just average the 2.

Thanks in advance!

So I'm new to forums.... we are a self insured health plan. We have a participant who has now become responsible for an unborn child (he got his girlfriend pregnant). We live in a common law state, so we have affidavit's readily available just for such an occasion. He has refused to sign, saying we should cover his soon to be dependent child, and the mother to assure our plan will soon have a healthy child:confused: I guess the thought is if she does not health coverage, then she would be at risk of delivering a baby that would not be as healthy if she did have coverage. My question is; I assume most plans would not cover this yet to be born child, but other than our plan saying that is the way it is, does anyone have any good reasons why we should not cover this child? I have plenty of reasons, but was looking for additional input. THanks.

Comments on the following??? Is this legal?

Department of Revenue has matched the list of those state employees paying into KPERS with their income tax filing for the last three years (1999, 2000, and 2001). The purpose of this matching is to determine if state employees are filing correctly by adding back their KPERS contribution to their federal adjusted gross income as required by state law. If the return has not been filed correctly, additional tax and interest will be due. This project will affect employees in most state agencies.

If you have not added back your KPERS contribution, the Department of Revenue will make an on-line adjustment to your account. You will then receive a letter from the Department of Revenue reporting the amount of tax, penalty and interest due. Penalty will be waived if full payment is received within 60 days.

Can an inservice withdrawal be a total distribution? or is there a limit on the amount that can be taked?

Thanks

Jane

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Account owner has balance of $10,000

Loan balabce of $2,000

wants to close account.

Can the participant use funds from the account balance to pay of the loan, if he has a triggering event?

Thanks

Jane

Accountholder dies prior to annuity starting date. Surviving spouse is sole beneficiary. Surviving spouse can: (1) take a distribution upon death and avoid the early withdrawal penalty; (2) leave money in the account and begin RMDs when the decedent would have attained age 70-1/2. Query: Can survivng spouse take a partial distribution without penalty and leave the balance in the account? If so, how many years can the surviving spouse take partial distributions and avoid the penalty by indicating that the distribution is on account of death, i.e., can this go on indefinitely?

Have an interesting one. Employer "adopted" SARSEP in 1995. Sponsor had a former DBP, so IRS ruling letter was requested for a SARSEP adopted in 1995. Turns out plan sponsor signed everything (POA, IRA, etc.) but the actual adoption agreement for the SARSEP. However, all docs were submitted to IRS and IRS, and IRS issued favorable ruling on the SARSEP.

However, there's many items which suggest that despite the IRS letter ruling, there's no valid plan: To wit:

1) Prop Reg 1.408-7 requires "executed" doc.

2)instructions to 5305A requiring all blanks, including signature space, to be completed

3)document itself specifies "completing and signing"

So issue is, can the ruling letter be relied on, or given the lack of signature on the adoption agreement, do I need to do a VCS filing or CAP filing just be be safe (since the arrangement is still active)? Thoughts anyone?

Our 401(k) plan allows all employees on date of hire to participate. In order to minimize the refunds under the plan after running the ADP test, we would like to take advantage of the regulation that permits the plan to be treated as two separate plans---one covering all employees who meet the minimum age and service requirements and one covering employees who do not. I am unclear on how this works. The employees who do not have a year of service---how do you identify? Our plan has an elapsed time provision. So does this mean all employees who have not worked for us for a year? Our recordkeeper says that we can ignore employees who have not worked for us for 18 months. Anyone with experience in this area?

What options does a plan sponsor have if a loan is technically in default and a deemed distribution should be issued because of the plan sponsor's failure to withhold loan payments?

Is an Employee Assistance Program considered an ERISA plan? Is a plan document, SPD required. And, must an annual 5500 be filed each year?

There seem to be several questions regarding the conversion of a PEO (single-employer plan) to a multiple employer plan. I have not seen these issues addressed and am hopeful that other have found answers:

1) Can a PEO offer a Mulitiple Employer plan to the common law employees of its clients but exclude the PEO's own employees from participation? If so, how does the PEO meet the definition of Plan Sponsor?

2) May a PEO make a "mid-year" conversion to a multiple-employer plan and not wait intil the Compliance date of 12/31/03? The Rev. Proc seems in one place to indicate that the first effective date for a conversion is 12/31/2003. Other parts of the Rev. Proc seem to say that this is just the drop-dead date and a conversion can come earlier.

3) If a conversion can be made prior to 12/31/2003, assume the transitional relief for ADP/ACP testing (as a single employer plan and not a multiple employer plan) is lost and the testing must be done as a multiple employer plan for 2003?

4) Suppose the PEO will convert 12/31/03 to multiple employer. It sends notifications to COS April1 and they have to respond by June 1. What about new COs that the PEO takes on after April 1- do they add them as part of a single employer plan? How can they, as the notification date is missed? I assume they cannot add them as a participating employer in a multiple employer plan as the plan is not yet a mutiple employer plan. Would the PEO have to set up a separate mutliple employer plan for these new COs in 2003 and then merge that with the converted multiple employer plan after 12/31/03?

5) What if a CO misses the notification date and, according to the Rev Proc, are slated to be put into a Spinoff Plan and terminated later decides they want to make an affirmative election (either to join the PEO multiple employer , or set up their own plan)? Are they just out of luck? Is the missing of the date irrevocable?

Your input on these questions is appreciated.

On our previous 5500 forms, (our accountants filed them for us), they were filed as a DFE, using code G. Can someone explain to me exactly what that means? I read the sections in the 5500 form instruction booklet from the IRS, but I am just not understanding it. We have two companies and the plan includes them both, but filed under only one of their EIN. I don't know if that's where it comes from, since it isn't a single employer plan. And I still have yet to understand the difference between multiple employer plan and multiemployer plan.

Thank you.

In a cross-tested db/dc combo, 40% of the eligible participants (including NHCE's) are covered under the DB plan. The other 60% of eligibles are in a safe harbor 401k plan, providing a 3% non-elective sh contrib, and 4.5% employer contrib. Further the HCE's in the DB plan make maximum salary deferrals to the 401k plan.

Do the NHCE's in the DB plan get a sh contrib, in the 401k plan? If so, what is the effect on the tax deductibility of total er contribs. to both plans under 404(a)(7) due to overlapping plan membership? On the other hand, can the 3% sh be deemed to be satisfied in the DB plan, specifically through the top-heavy requirement? Finally, should these steps be included in the plan documents?